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Wealth Managers Jumping Ship to Avoid Disclosure of Signing Bonuses

Financial advisers are rushing to switch employers before a new regulation requiring them to disclose signing bonuses kicks in. Once the new rule is in place – likely next year – wealth managers who accept six- and seven-figure signing bonuses at a new firm will have to disclose their windfall to clients.

The details of the new regulation being developed by the Financial Industry Regulatory Authority in the U.S. aren't yet clear, and FINRA declined to comment. Recruiters and wealth managers expect advisers to accelerate their job moves in the fourth quarter of 2013. “It will accelerate people moves for sure,” said James Cox, managing partner at Harris Financial Group, a Virginia-based advisory firm. “If you a recruiter, you could not have had a better situation. Advisers will try to jump in under the line.”

A UBS adviser who asked to remain nameless sat down with a colleague this week who indicated he will move before the rule is implemented in an effort to avoid awkward conversations with clients admitting he switched firms for a bonus. “When someone is dangling seven figures in your face, what are you to do?” the adviser said.

“It might not make someone move, but it will surely tip the scales,” said Jon Duncan, vice president of wealth management at Steven Douglas Associates.

After the rule comes down, activity should abate, at least for the short term. “Some will be reluctant to move with this attached,” said Bill Willis, chief executive of financial adviser firm Willis Consulting,. However, the rule will have little net effect after the dust settles, he said. It will become the new norm.


Beware Big Signing Bonuses That Come with Strings Attached

Barclays Hiring Talent in Wealth Management Push

UBS, Wells Fargo, J.P. Morgan, Morgan Stanley, Barclays and Edward Jones have been actively hiring wealth managers.  Barclays announced 16 new wealth management hires in February, all poached from big name competitors like Goldman Sachs, Deutsche Bank and Merrill Lynch. The U.K. bank also just opened a new office in Beverly Hills.

Edward Jones hopes to add 3,000 new financial advisers in 2013, a spokesperson told eFC. Southwest Securities poached four legacy Morgan Keegan advisers just this week.

Wealth management job postings on eFinancialCareers increased 42% in 2012. Expect that number to grow in 2013.

The Fallout

If adopted, the proposed bonus disclosure rule shouldn’t be a detriment to top advisers who have legitimate reasons to move, like a firm's barren product line or a poor management structure, experts said. But it will hurt the serial job hopper who jumps wirehouses every few years for a signing bonus, which is a loan forgivable over time, as long as the adviser fulfills their contract.

“Good advisers move once, tops,” said Duncan. “This won’t bother them at all.”

“You explain that they are willing to pay you because you are the best and brightest,” said the UBS adviser, who himself has switched firms. "Clients end up buying it.”

Average advisers, who are more prone to move firms for the money, will be the ones most deeply affected.

“If the value is one-sided, and they just heard you made $4 million, clients will begin to question why they’re with you,” said Duncan, who has seen some advisers move four or five times in their career.

“They’ll begin to think: ‘Are they making this move for me or them?’” Duncan added.

Those who are offered huge deals – several million dollars to move – may also run into some difficulties.

“If you a getting $100,000 it’s not a big deal,” said Cox. “If you get $3 million, it could be a problem.”

For superstars, some firms are paying advisers an upfront payment worth 125% of the revenue they generated during the last 12 months, said Paul Werlin, president of Human Capital Resources, a Florida-based financial services recruiting firm. The average revenue generated by UBS advisers in the fourth quarter of 2012 topped $1 million, for example.

Duncan speculates that the average adviser loses roughly 20% of their book of business when they move firms under current conditions, although many of the losses tend to be less valuable clients who aren’t as well taken care of.

Broader Impact

It's not clear whether the rule will deter costly talent poaching among the banks. In 2011, Bank of America Merrill Lynch and Morgan Stanley Smith Barney each infamously poached a five-person team of advisers from each other in the same week, essentially swapping employees while handing over millions in bonuses. "Maybe this will stop the game of musical chairs," said the UBS adviser. Experts believe that's unlikely.

“Firms discovered that it’s cheaper to pay experienced advisers with no compliance issues millions of dollars than train young prospects with no experience,” said Cox. “You have to hire 15 people to get one good [recruit].”

Big firms have put their support behind the rule. Wells Fargo, UBS, Merrill Lynch, Edward Jones and Morgan Stanley each sent letter to FINRA backing the proposal.

The rule implementation appears inevitable. If you’re an adviser, client or recruiter, get ready for a busy six months.

AUTHORBeecher Tuttle US Editor

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